How to Benefit from Section 179 Tax Incentives
Investing in Equipment Can Payoff in Big Tax Savings
$1,220,000 Section 179 Deduction
The Section 179 tax deduction allows small manufacturing companies to deduct the first $1,220,000 of equipment purchased from their taxable income. For companies purchasing (or leasing – with a $1.00 Purchase Option Lease) up to $3,050,000 of equipment, this deduction is available in full. The deduction phases out dollar-for-dollar from $3,050,000 to $4,270,000 and is not available for companies purchasing over $4,270,000. This spending cap makes Section 179 a true “small business tax incentive”.
60% Bonus Depreciation
The Law also allows 60% “Bonus Depreciation”, once Section 179 deduction limit is reached. This 60% “Bonus Depreciation” can be taken on new or used equipment.
Placed in Service Rule
You can take full advantage of Section 179 and Bonus Depreciation for business property you placed in service during the tax year. Property is "placed in service" when it is ready and available for its assigned function in your business. As long as it is available for such use, you don't have to actually use the property for business during the year to take depreciation.
Example 1. John purchased a machine to take make screws. He had the machine ready for use on November 1, 2023. However, he ended up not needing to make the screws until 2024. Tom may take a Section 179 or bonus depreciation deduction for the machine for 2023, even though he didn't actually use it that year, because it was ready and available for use then.
Example 2. John purchased and paid for CAD software online on December 28, 2023. However, the software was not delivered until January 2, 2024. John may not deduct any part of the cost of the software on his 2023 return. He has to wait until the next year to take this deduction.
Note, MFR is not a qualified tax advisor. You should always consult with your accountant prior to making any purchase based on tax consequences.